61!West!23rd Street,!5th Floor

New!York,!NY!10010

September!24,!2015

Submitted)Electronically)(e3ORI@dol.gov)

Office!of!Regulations!and!Interpretations!

Office!of!Exemption!Determinations!

Employee!Benefits!Security!Administration!

United!States Department!of!Labor!

Attn:!Conflict!of!Interest!Rule,!Room!NP5655

200!Constitution!Avenue,!N.W.!

Washington,!D.C.!20210

Re:! Conflict!of!Interest!Rule,!RIN!1210PAB32

Ladies!and!Gentlemen:

We!are!writing!on!behalf!of!Betterment!LLC,!an!SECPregistered!investment!advisor,!in!

support!of!RIN!1210PAB32.!Much!commentary!has!already!been!publicly!submitted!in!

response!to!Department!of!Labor’s proposed!rulemaking!change!published!in!the!

Federal!Register!on!April!20,!2015!(“Proposed!Rules”).!As!an!automated!investment!

service!that!provides!fiduciary!advice!to!more!than!110,000!clients,!we!have!closely!

followed!the!debate.!

The!main!argument!against!the!proposal!seems!to!be!that!forcing!those!who!provide!

services!to!retirement!accounts!to!abide!by!the!fiduciary!standard!will!make!servicing!

lowerPbalance!accounts!economically!unappealing.!As!a!result,!given!that!such!investors!

do!not!meet!the!minimums!of!traditional!feePonly!fiduciary!advisors,!they!will!have!no!

access!to!“advice”!at!all.!

We!take!issue!with!this!misleading!characterization!of!the!status!quo. The!implication!

that!“suitability”Pgoverned!salespeople!are!giving!investors!“advice”!deserves!forceful!

and!repeated!debunking.!Conflicts!of!interest!should!be!prominently!disclosed,!and!

investors!should!be!made!fully!aware!of!how!their!service!providers!are!actually!

compensated.!

Meanwhile,!the!rapidly!growing!category!of!automated!investment!advice!is!emerging!

as!a!clear!rebuttal!to!those!who!worry!that!small!accounts!will!be!left!unserved.!Modern!

technology!allows!for!fiduciary!advice!to!be!delivered!at!unprecedented!scale,!with!the!

expected!quantum!leap!in!affordability.!We!believe!that!these!services,!offering!lower,!
Office!of!Regulations!and!Interpretations!

Office!of!Exemption!Determinations!

September!24,!2015

Page!2

transparent!prices,!fiduciary!advice,!and superior!experiences,!will!prevail!in!the!market!

against!heavily!conflicted,!legacy!business!models.!

Behind!all!the!rhetoric!is!an!agePold!dynamic;!there!are!those!who!are!busy!building!

innovative!services!to!better!serve!consumers,!and!then!there!are!the!rentPseeking!

incumbents!who!are!busy!deploying!their!formidable!resources!lobbying!to!preserve!the!

status!quo.

On!a!recent!visit!to!Washington,!D.C.,!a!team!from!Betterment!had!the!opportunity!to!

witness!this!propaganda!offensive.!We!were!struck!by!the!deep!cynicism!of!these!

efforts,!and!we!feel!compelled!to!weigh!in,!for!the!public!record.!

We!join!the!chorus!of!voices!in!support!of!expanding!and!strengthening!the!fiduciary!

standard.!More!specifically,!services!such!as!ours!have!been!pulled!into!the!

conversation,!and!we!want!to!take!the!opportunity!to!address!some!misrepresentations!

being leveled!at!automated!advice.!

Fiduciary!Advisor!Is!to!Doctor!as!Stockbroker!Is!to!Pharmaceutical!Rep

One!opposition!talking!point!that!has!gotten!traction!is!that!the!DOL’s!proposal!is!akin!to!

Obamacare!for!retirement!savings.!Rep.!Sean!Duffy,!RPWis.,!who!ran!a!recent!House!

subcommittee!hearing!on!the!proposal,!made!the!explicit!comparison,!arguing!that!the!

proposal!“is!yet!another!attempt!by!the!administration!to!perpetuate!a!'governmentP

knowsPbest'!regime,”!adding!that!“Americans!should!be!able!to!make the!investment!

choice!that!is!right!for!them.”!

Leaving!aside!the!merits!of!the!Affordable!Care!Act,!we!happen!to!agree!that!when!it!

comes!to!the!modern!retirement!landscape,!the!health!care!comparison!is!apt.!By!

relegating!the!majority!of!Americans!over to!a!defined!contribution!model!for!saving!for!

retirement,!we’ve!given!them!full!responsibility!for!determining!how!much!to!save,!and!

how!to!invest!their!savings.!This!is!not!unlike!telling!them:!“Here!is!every!medicine!ever!

made.!You!decide!which!ones!to take,!and!how!much.”!No!doctors!included.

What’s!worse,!we’ve!allowed!the!securities!industry!to!fill!the!void,!by!essentially!letting!

pharmaceutical!representatives!to!masquerade!as!doctors.!Over!the!decades,!

stockbrokers!(i.e.,!salespeople)!have!increasingly!adopted!the!“advice”!label,!and!

consumers!simply!do!not!understand!that!there!exists!a!higher!standard!for!fiduciary!

advisors.!
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Office!of!Exemption!Determinations!

September!24,!2015

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Most!consumers!cannot!rationally!choose!a!fiduciary!advisor!over!a!salesperson!because!

they!do!not!know!there!is!even!a!choice!to!be!made.!Research!shows!that!more!than!

75%!of!investors!are!not!aware1 that!two!different!standards!exist!for!those!

recommending!investments.!They!often!assume!that!all!service!providers!(including!

those!under!the!“suitability”!standard)!have!their!best!interests!at!heart.!

A!recent!report2 issued!by!the!PIABA!demonstrates!this!point!succinctly.!The!authors!

contrast!the!language!used!by!major!national!brokerages!in!their!marketing,!with!the!

positions!these!brokers!take!in!arbitration!proceedings!when!sued!for!losses!caused!by!

their!misconduct.

Broker)A’s)marketing:!“Until!my!client!knows!she!comes!first.!Until!I!understand!what!

drives!her.!And!what!slows!her!down.!Until!I!know!what!makes!her!leap!out!of!bed!in!

the!morning.!And!what!keeps!her!awake!at!night.!Until!she!understands!that!I’m!always!

thinking!about!her!investment.!(Even!if!she!isn’t.)!Not!at!the!office.!But!at!the!opera.!At!

a!barbecue.!In!a!traffic!jam.!Until!her!ambitions!feel!like!my!ambitions.!Until!then.!We!

will!not!rest.”

Broker)A’s)position)in)arbitration)proceedings:!“[A]!broker!does!not!owe!a!fiduciary!duty!

to!his!customer!in!a!nonPdiscretionary!account.”

Broker)B’s)marketing:!“It’s!time!for!a!financial!strategy!that!puts!your!needs!and!

priorities!front!and!center.”

Broker)B’s position)in)arbitration)proceedings:!“Respondents!did!not!stand!in!a!fiduciary!

relationship!with!Claimants.”

These!brokers!are!household!names:!institutions!that!radiate!trust!and!security!through!

decades!of!shrewd!marketing.!The!DOL’s!proposal!has!already!done!a!tremendous!

service!to!the!public!interest,!simply!by!elevating!this!issue!to!prominence.!In!our!

experience,!many!observers!have!only!become!aware!of!the!distinction!between!the!

“suitability”!and!“fiduciary”!standards!because!of!this!debate.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 Joseph!C.!Peiffer,!“Separating!fiction!and!facts!in!the!conflictedPadvice!debate”!(July!23,!2015),!available!

online!at!http://thehill.com/blogs/congressPblog/economyPbudget/248866PseparatingPfictionPandPfactsP

inPthePconflictedPadvice. 2 Joseph!C.!Peiffer!and!Christine!Lazaro,!“Major!Investor!Losses!Due!to!Conflicted!Advice:!Brokerage!

Industry!Advertising!Creates!the!Illusion!of!a!Fiduciary!Duty”!(Mar.!25,!2015),!available!online!at!

https://piaba.org/system/files/pdfs/PIABA%20Conflicted%20Advice%20Report.pdf.!
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Office!of!Exemption!Determinations!

September!24,!2015

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Services!to!Qualified!Plans!Are!Uniquely!Broken

Those!saving!in!employerPsponsored!retirement!plans!are!especially!vulnerable,!because!

a!principalPagent!problem!prevents!better!outcomes.!The!decision!makers!(e.g.,!plan!

sponsors’!human!resources!executives)!are!not!the!ones!bearing!the!full!cost!of!

suboptimal!choices.!Accordingly,!brokers!structure!their!offerings!to!target!the!

incentives!of!the!decision!makers—lower!upfront!cost!to!the!company—while!making!

money!in!less!apparent!ways!off!the!participants.

That!often!leaves!participants!captive!to!a!limited!selection!of!overpriced!(but!still!

“suitable”)!funds!that!charge!several!times!what!a!comparable!index!fund!should!cost!in!

the!open!market.!This!is!classic!market!failure,!potentially!costing!investors!hundreds!of!

thousands!in!excessive!fees!over!their!lifetimes.!Smaller!plans!are!particularly!affected.

While!Betterment!has!offered!automated!investment!advice!to!individual!IRAs!under!

the!fiduciary!standard!for!more!than!three!years,!we!always!intended!to!tackle!the!

unique!challenges!of!qualified!plans.

Accordingly,!we!recently!launched!Betterment!for!Business,!a!turnkey!401(k)!offering,!

extending!Betterment’s!fiduciary!advice!to!employerPsponsored!plans!of!all!sizes,!at!

industryPleading!low!fees

3

.!This!makes!Betterment!the!first!automated!investment!

service!to!offer!its!services!to!the!full!range!of!accounts!used!by!most!Americans!to!save!

for!retirement.!It!is!also!the!first!affordable!401(k)!plan!that!includes!personalized!

fiduciary!advice!for!all!participants.

What!“RoboPAdvice”!Is,!and!Isn’t

These!developments!have!been!noted!by!policymakers!at!the!DOL,!who!have!rightfully!

pointed!to!offerings!such!as!ours!to!rebut!arguments!against!the!proposal.!This!

recognition!has!given!entrenched!industry!opposition!an!opening!to!launch!a!concerted!

effort!to!spread!misinformation!about!the!nature!of!automated!fiduciary!advice.!

Until!automated!investment!services!were!pulled!into!the!discourse,!lobbyists!largely!

resorted!to!vague!protestations,!calling!the!proposal!“unworkable.”!The!term!“roboP

advisor,”!often!used!by!the!press!to!describe!services!such!as!ours,!has!given!opponents!

an!easy!path!to!mischaracterize!the!nature!of!the!rapid!innovation!taking!place!in!the!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 “Betterment!for!Business:!The!Best!401(k)!for!Employers!and!Employees”!(Sept.!11,!2015),!available!

online!at!https://www.betterment.com/resources/insidePbetterment/productPnews/bettermentPforP

businessPthePbestP401kPforPemployersPandPemployees/.!
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September!24,!2015

Page!5

industry.!Bereft!of!intellectually!compelling!arguments,!and!given!a!clear!target,!

lobbyists!have!jumped!at!the!opportunity!to!play!on!the!fears!of!the!public.!

The!reassuringly!named!lobbying!organization!Americans!To!Protect!Family!Security,!Inc.!

has!been!running!a!television!campaign!featuring!a!couple!lamenting!that!“these!new!

regulations!they’re!pushing!in!Washington”!will!make!it!hard!to!get!help!from!“Anne,”!!

their!“financial!advisor.”!The!alternative!will!be!“to!pay!a!lot!more,”!or!alternatively,!

“we’ll!be!talking!to!a!robot!on!the!phone.”4

The!juxtaposition!of!the!familiar!and!human!“Anne”!(who!is!not!obligated!to!put!her!

clients’!interests!first)!and!the!unmistakable!reference!to!cold!and!impersonal!“roboP

advice”!is!effective.!But!what’s!striking!is!how!little!resemblance!the!allusion bears!to!

the!automated!advice!offerings!actually!serving!clients!today.!

Casual!observers!can!be!forgiven!for!assuming!that!algorithmic!advice!cannot!possibly!

involve!interaction!with!a!human!being.!At!Betterment,!precise,!consistent!and!

unconflicted!algorithms!make!recommendations!to!clients!on!how!to!reach!their!goals,!

tailored!to!each!client’s!personal!circumstances.!Incorporating!insights!from!behavioral!

finance,!our!awardPwinning5 user!interface!surfaces!only!the!most!relevant!data!to!

clients,!mitigating!human!tendencies!to!make!poor!decisions.!

Yet!from!its!inception!over!five!years!ago,!Betterment!has!always!featured!live,!human!

customer!support,!seven!days!a!week.!In!2015,!Consumer!Reports!named!Betterment!in!

its!top!five!for!customer!service,!alongside!industry!giants!that!have!been!around!for!

decades.6 Far!from!being!mutually!exclusive,!technology!and!customer!experience!go!

handPinPhand.!The!algorithmic!advice!is!efficient,!scalable,!and!unbiased,!but!should!

they!choose!to!call,!our!clients!will!speak!only!with!a!human.

Observers!have!also!speculated!that!automated!investment!services!are!for!the!young,!

and!therefore!cannot!serve!as!the!panacea!for!retirement!savers!at!large.!This!has!not!

squared!with!our!experience;!more!than!25%!of!Betterment’s business!comes!from!

customers!over!the!age!of!50,!and!the!segment!is!growing!fast.!While!younger!investors!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4 Americans!to!Protect!Family!Security,!“2015!Savers”,!available!online!at!

http://www.ispot.tv/ad/7UmR/americansPtoPprotectPfamilyPsecurityP2015Psavers. 5 The!Webby!Awards,!2014!Webby!Award!Winner for!Financial!Services/Banking,!available!online!at!

http://www.webbyawards.com/winners/2014/web/generalPwebsite/financialP

servicesbanking/betterment/.! 6 Lisa!Shidler,!“Consumer!Reports!names!Betterment!in!top!five!for!customer!service!with!USAA,!Schwab,!

Vanguard!and!T.!Rowe!Price”!(Aug.!14,!2015),!available!online!at!

http://www.riabiz.com/a/5045180725985280/consumerPreportsPnamesPbettermentPinPtopPfivePforP

customerPservicePusaaPschwabPvanguardPandPtProwePprice.
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September!24,!2015

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tend!to!be!earlier!adopters!of!new!products,!we!have!observed!no!generational!

preference!for!the!convenience!and!value!of!better!technology.

How!Clients!of!Automated!Investment!Services!React!to!Volatility

A!related!antiProbo!shibboleth!has!opponents!bemoaning!the!inevitable!demise!of!

“handPholding”!during!market!downturns,!ostensibly!available!to!clients!to!“suitability”P

governed!brokers.!This!benefit!is!sure!to!be!lost!as!clients!migrate!over!to!automated!

fiduciary!advisers,!the!argument!goes.!

Color!us!skeptical!as!to!the!extent!and!value!of!any!“handPholding”!actually!offered!by!

commissionPdriven!salespeople.!These!professionals!are!not!inherently!bad!people,!but!

they!are!incentivized!to!encourage!you!to “do!something”!as!often!as!possible.!One!

should!expect!their!“advice”!during!a!downturn!to!result!in!unnecessary!trading,!rather!

than!doing!absolutely!nothing,!which!is!what!longPterm!investors!should!be!doing.

What!we!can!offer!to!the!debate!is!empirical!data!on!how!110,000!clients!of!an!

automated!investment!service!actually!react!to!volatility.

On!Monday,!Aug.!24,!markets!opened!5%!down!from!their!Friday!close,!and!over!10%!

down!from!recent!peaks.!While!this!is!far!from!the!worst!drawdown!investors!have,!or!

eventually!will!experience,!it!was!significant!nonetheless,!and!press!coverage!through!

the!day!was!pervasive.!The!markets!recovered!somewhat!by!Friday,!but!the!week!

continued!to!see!substantial!volatility.!

The!chart!below!shows!movement!of!the!S&P!500!spanning!these!seven!days.

S&P)500)Movement)During)Market)Volatility
Office!of!Regulations!and!Interpretations!

Office!of!Exemption!Determinations!

September!24,!2015

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We!did!experience!a!small!increase!in!customer!logins!during!the!market!volatility.!

Betterment’s!approach!during!periods!of!volatility!is!to!proactively!communicate!only!

with!clients!who!log!in,!rather!than!to!contact!all!clients!indiscriminately.7 Those!who!did!

log!in!were!presented!with!advice!which!put!the!volatility!into!context,!and!encouraged!

them!to!focus!on!their!longPterm!goals.!The!data!show!that!less!than!1%!of!our!

customers!reacted!to!the!market!activity!with!an!allocation!change!or!withdrawal.!

As!discussed!above,!Betterment!clients!can!contact!customer!service!by!phone!or!email,!

each!of!which!results!in!the!creation!of!a!case!in!our!CRM!system.!Betterment’s!

customer!service!saw!a!pretty!typical!Monday,!with!just!5.58%!more!cases!than!usual.!

Tuesday!was!actually!considerably!slower,!25.6%!below!normal!volume.

Betterment)Customer)Service)Activity)During)Market)Volatility

This!data!is!not!meant!to!prove!anything!conclusively,!one!way!or!another.!However,!we!

believe!that!empirical!observations!across!a!110,000!client!base!adds!value!to!the!

debate.!In!a!vacuum,!policymakers!and!industry!observers!are!vulnerable!to!insinuations!

about!how!“roboPadvisors”!actually!interact!with!their!clients,!and!to!what!effect.

Critics!would!have!everyone!believe!that!these!innovative,!efficient!services,!designed!

from!the!ground!up!to!be!aligned!with!clients’!interests!under!the!fiduciary!standard,!

will!all!but!lead!American!savers!into!a!cold!and!impersonal!investing!dystopia.!We!

believe!that!smart!technology,!good!design,!engaging,!educational!content,!and!

exceptional!customer!service!will!immeasurably!improve!client!outcomes,!and!that!none!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 7 Behavioral!research!shows!that!bringing!anxietyPinducing!events!to!the!attention!of!those!who!might!

otherwise!ignore!them!is!expected!to!lead!to!worse!decisions.!
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Office!of!Exemption!Determinations!

September!24,!2015

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should!shed!a!tear!for!the!passing!of!conflicted,!commissionPdriven!sales,!passing!itself!

off!as!“advice.”

Everyone!Deserves!Unconflicted!Retirement!Advice

We!do!not!blindly!support!regulatory!changes!that!are!certain!to!have!a!disruptive!

impact!on!the!industry.!But!the!opponents!of!the!proposal!have!an!intellectually!weak!

position.!And!there!is!so!much!badly!in!need!of!disruption!when!it!comes!to!helping!

Americans!reach!their!financial!goals.!

Everyone!is!entitled!to!unconflicted!fiduciary!advice,!and!at!Betterment,!we!are!hard!at!

work!building!the!nextPgeneration!service!that!is!making!this!possible.!We!support!the!

DOL’s!proposal!because!we!believe!it!will!accelerate!this!shift!toward!an!unambiguous!

public!good.

***

Betterment!appreciates the!opportunity!to!comment!on!the!Proposed!Rules.!We!would!

be!pleased!to!discuss!these!points!further!and!provide!any!other!additional!information!

you!believe!would!be!helpful.!Please!feel!free!to!contact!us!at!jon@betterment.com!if!

you!have!any!questions.!

Sincerely,

Jon!Stein,!Founder!and!CEO

Eli!Broverman,!CoPFounder!and!COO